Predictable, but Unnecessary, Failure

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Predictable, but Unnecessary, Failure

InsideCapitolDome
Governor Ted Kulongoski recently unveiled his budget plan - deep cuts to most state services and no new revenues. Defending the spartan and shrinking budget, Kulongoski argued “we can’t solve our state budget crisis if we can’t get the economy moving again.” Since nothing he or his administration does can “get the economy moving again,” the new Governor has inadvertently, but unnecessarily, resigned himself to failure before he starts.

Predictable, but Unnecessary, Failure

Governor Ted Kulongoski recently unveiled his budget plan – deep cuts to most state services and no new revenues. Defending the spartan and shrinking budget, Kulongoski argued “we can’t solve our state budget crisis if we can’t get the economy moving again.” Since nothing he or his administration does can “get the economy moving again,” the new Governor has inadvertently, but unnecessarily, resigned himself to failure before he starts.

Kulongoski cannot alter the international economic trends that threw Oregon and the rest of the country into recession. Oregon’s economy is already recovering, and when it hits full stride Kulongoski will not be responsible for its success. If Kulongoski pursues a program of tax cuts and other special incentives for businesses, he will leave Oregon less able to provide key public services once the economy does recover.

Like many in the business lobby, Kulongoski and his staff seem convinced that Oregon is not “friendly to business.” The record suggests otherwise: between 1989 and 2000 Oregon experienced more than 30,000 new businesses (38 percent growth) and 415,000 new jobs (35 percent growth). Oregon experienced more economic growth than Kulongoski could ever dream about, let alone achieve, under existing taxes and regulations. Oregon fell into recession because of international economic factors, not because of its taxes or regulations.

Oregon already has the lowest business taxes among Western states, and further cuts won’t generate significant new jobs or investment. A big corporate tax cut from the last legislature will cost the state $31 million per year, but is expected to generate fewer than 100 jobs. Supporters promised that it would “truly be one of the most significant statewide economic development or employment generators Oregon has witnessed for some time.” Some of the same purveyors of wasteful corporate giveaways appear to be advising Kulongoski.

Proclaiming “no more business as usual,” Kulongoski offered the utterly predictable and tired business giveaway recipe of “retention, expansion, and recruitment.” This troika is not an economic development strategy so much as it is giving into the blackmail known as the “economic war among the states.” Businesses play one state or city against the other, bidding the incentive packages and tax cuts higher, before selecting the location they would have chosen anyway. New jobs are not created, but all states are less able to finance basic public services. The end result is either less education and public safety, or somebody else footing the bill. Guess who?

Ironically, by pledging not to pursue additional funding for education, public safety, and other state services, Kulongoski is rejecting the only thing the state can do that actually matters for business decision making. Time after time, research literature and business location professionals have confirmed that tax cuts and incentives matter little. Workforce quality and transportation costs, and the public services that impact these costs, matter a great deal.

Oregon is already a low tax state, with an economy that has massive excess production capacity, depressed demand for output, hundreds of crumbling bridges, and soon the shortest school year in the country. More tax cuts and corporate incentives won’t put Oregonians back to work if the demand is not there. Businesses won’t consider Oregon if we can’t provide quality public services.

If Oregon is to provide quality education, public safety, and infrastructure, services that foster an atmosphere where businesses can grow and people can prosper, it cannot wait until the national and international economy has recovered. These services define the state of Oregon, and they ought to be key to the economic recovery, not an afterthought.

OCPP

OCPP

Written by staff at the Oregon Center for Public Policy.

Jeff Thompson

Jeff Thompson is an economist and policy analyst with the Oregon Center for Public Policy.

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